Expand Business to Germany: A Guide to Market Entry

With the largest economy in Europe, innovative business culture and manufacturing dominance, highly skilled workforce, and 45 preferential international trade agreements, Germany is often a top choice of companies seeking to enter new international markets.

But before you go expanding into Germany, there are several business and regulatory factors to consider.

An overview of the German market 

Germany ranks as the fifth-largest economy in the world, with an estimated GDP of $4,319.29 trillion by year’s end. That accounts for nearly 20% of the entire EU GDP. 

With a population of 83.2 million, Germany is the largest consumer market in the EU. This large citizenry, combined with the country’s industrial strength and the centralized location, makes it a trade capital with countries around the globe. 

At the heart of Germany’s economic power is its industrial and manufacturing output. There are three primary sectors that stand out within the German economy: 

1. Automotive. Germany is home to some of the largest car manufacturers in the world, including Volkswagen, Mercedes, BMW and Audi. According to Germany Trade & Invest:

• German manufacturers produced over 16,000,000 vehicles in 2019
• 60% of R&D growth in Europe was created by the automobile sector
• 24% of domestic industry revenue was generated by the automotive industry
• Passenger cars and light commercial vehicle OEM generated a foreign market revenue of almost EUR 282.4 billion 

2. Mechanical engineering. One in 10 mechanical engineering products worldwide are produced in Germany. It ranks third among the world’s market leaders. Baden-Wüttemberg is the largest manufacturer location, with more than 348,000 employees.

3. Chemical engineering. Germany has the fourth-largest chemical industry in the world behind China, the U.S. and Japan. It had a revenue of EUR 157 billion.  

Although there has been steady growth over the past decade, there are some factors that could dampen the future economic outlook of this European country. According to the International Trade Administration, these include: 

• Demographic changes and resulting labor bottlenecks
• Regulation of the labor market
• Higher energy prices due to the phase-out of coal and nuclear energy in favor of renewable sources

Why expand to Germany?

Aside from being a competitive marketplace and trade hub nestled in the heart of Europe, there are some key factors that make Germany an enticing destination for companies looking for international expansion. These include: 

A highly skilled workforce

Germany has a robust vocational and educational and training system. This helps channel young people into their ideal field from an early age, which helps encourage specialization. The vocational track especially has been a major contributor to the continual output of skilled laborers.

Cross-border trading 

As a member of the EU, Germany is relatively open to exports and third-country import duties, restrictions and prohibitions. It’s bordered by nine other countries: 

• Denmark
• The Netherlands
• Belgium
• Luxembourg
• France
• Switzerland
• Austria
• Czech Republic
• Poland

This makes it an attractive center of operations for businesses seeking international expansion throughout Europe. Additionally, Germany has multiple EU trade agreements as well as other agreements with countries like the U.S.

Strong IP laws

As a leader in innovation, especially in industrial and automotive engineering, Germany recognizes the importance of intellectual property protections. This European country has robust copyright, patent law and trademark law in order to safeguard a businesses’ valuable assets. It also has strict competition laws that prevent rivals from making false claims about the product. 

English-speaking 

Compared with other non-native English-speaking countries, a significant percentage of Germany’s population speaks English as a second language. In fact, recent estimates put that figure at approximately 56% of the population. And those percentages are likely even higher in industries like trade and finance.

Challenges of expanding to Germany 

Although Germany is an attractive destination for any foreign company seeking to expand, entering this new market isn’t without its challenges. Namely, there are two overarching differences in culture and regulations.

Cultural differences

There will be inevitable cultural barriers that make a move to Germany tricky. They include: 

• Demand for quality
• Work-life balance
• Formal business culture:

Regulatory differences

German has stringent labor laws, many of which favor the employee over the employer. This can make HR a challenge for those unfamiliar with the nuances of the country’s statutes and regulations. 

Any organization evaluating expansion to Germany would need to consider: 

• Employment contracts
• Terminating an employee
• Sick leave
• Holiday leave
• Employer taxes:
• Maternity leave:

HR help as you expand to Germany 

Expanding into Germany is a big opportunity for any company looking to increase its global footprint. 

But getting started, particularly when it comes to hiring workers, isn’t without its share of difficulties. There are both cultural and regulatory hurdles that you must understand and prepare for. 

That’s where a global employment partner, particularly one with local HR expertise, can help guide you as you build your presence in Germany. Learn more about our Germany employer of record solution, which can help ensure a compliant expansion to Germany.